A Passion for Liberty
Tibor R. Machan @ Rational Review
Posts tagged capitalism
Column on Consequences of Mixed Systems
May 4th
Some Consequences of Mixed Systems
Tibor R. Machan
China is what political economists call a market socialist country, with political socialism at a virtual dictatorial level (as distinct from, say, democratic socialist and liberal democratic countries) and is thus very precarious when it comes to its political stability, kind of like Chile was under General Pinochet. The rulers will keep trying to square the circle, having a largely free, capitalist economy and a one party socialist political regime. But everyone knows this is very vulnerable to upheavals, especially once the economic side of the equation makes enough ordinary people wealthy so they no longer look to the government to sustain their way of life.
When a country is politically socialist, this means that officially what is most important is the well being of society as a whole. Karl Marx referred to a socialist society as an organic whole or body and this implies that the different elements of it, the limbs, organs, cells, etc., are all subordinate to the whole society. This is why such a country is also called collectivist–it is the collection of everything, including people, land, natural resources, culture and achievements, that is important. Certainly the individual citizens are not except as they contribute to the society as a whole. By such an understanding of a society or country, anyone who isn’t fully on board with where the society is headed–as determined by the rulers who are, officially, the head of the organic body–is deemed to be mentally ill. Sometimes so much so that like some tumor in a human individual, such an individual might need to be cut out or otherwise pacified. Any idea that such an individual might simply be a legitimate dissident is officially alien in a bona fide socialist country.
Of course, there has never been a fully functioning socialist country–even in contemporary North Korea, which comes the closest to the idea, small segments of the population manage to function outside of the system. In the economy there is a sizable black market that operates without the full involvement of the government (which is the official policy). Indeed, in all the political economies around the globe referred to as “capitalist,” “socialist,” “fascist,” “communist,” or “welfare statist” the correspondence between what the theory requires and what exists in reality is rather loose.
Still, it is undeniable that when the legal system conforms mainly to socialist tenets–when the public sector is deemed to be far more important than the private sector–this will have practical consequences. In the official rhetoric of the rulers and their supporters there will be routine endorsements of the superior significance of the public versus the private interest in society. Non-profit endeavors will be favored, at least in official discussions. The idea that people are all a tiny part of the country–and that, for example, they ought not to ask what the country can do for them but ask what they can do for the country–will be embraced and seeking to advance one’s own agenda will be deemed objectionable, greedy, selfish, and narrowly individualist.
The welfare state, in turn, is indeed an explicit attempt to combine certain socialist and some capitalist political economic features. A more complicated mixed economy will have elements of most political economic systems combined in it, a kind of smorgasbord in which some of the items may not co-exist well with others and where if troubles arise it is difficult to tell which element made the greatest contribution to it. Nor will the successes be easily traced to their causes.
For example, the recent financial fiasco–some call it a meltdown–comes from a mixed system and not from the policies of one political economic arrangement and so to tell which of the various elements that have been in place for decades on end–or which combination of them–is responsible is very difficult to determine. This is one clear reason why when the likes of Paul Krugman point fingers at the free market elements, such as a bit of economic deregulation, as responsible for the mess, their claims can be seen as purely ideological, meaning indicative of their prior, unexamined commitment to anti-market economic policies. No one who is honest could tell from a quick examination that the meltdown or whatever one calls it was caused by one or another type of economic ingredient of the mixture that has been in operation for a very long time. It is possible to figure that out but it would take meticulous study since the different elements of the mixture do not operate in isolation from each other. It is as if one tried to determine why one caught food poisoning after a sumptuous smorgasbord. Any one or some combination of the items on the menu could have been responsible.
A statist will tend to blame the free market elements whereas a free market champion will look to statist elements to explain the mess. And this is not without good reason, since both have gained confidence in their ideas over time and do not consider it plausible that elements they champion would have produced havoc.
That is just one of the consequences of a mixed economic system.
Column on Essential Capitalism
Apr 10th
Essential Capitalism
Tibor R. Machan
A while back I got caught up in a fracas about using the term “capitalism” to mean the free market, fully voluntary system of economic relations. It didn’t surprise me since I am aware that complicated matters often need to be discussed, well, in complicated ways so when one just refers to some system as “capitalist” or “democratic” or “socialist” or “libertarian,” one is likely to start a dispute as to just what the term is to mean in the language in which such issues are to be discussed.
For most of my life and career, much of it entangled in writing about political economy, I have taken “capitalism” to mean just that, the free market, fully voluntary system of economic relations. No such system has ever existed, of course, and yet the term is often used to refer to certain extant economies, such as those of England, America, Australia, Hong Kong (prior to its return to China), and so forth. Some even call today’s version of “communist” China a capitalist country. And with a bit of generosity this is no big problem. Such uses of “capitalist” or “capitalism” amount to indicating some of the most basic and distinctive features of a country’s economic order without at all implying that the country is adhering thoroughly to the principles of capitalism as a fully developed, consistently implemented economic order conceived by those who champion it without compromise.
I like to compare this to using the term “marriage,” since most marriages do not at all conform to the version of that institution that one has in mind in one’s most romantic imaginings. Yet, we use “marriage” or “married” without constantly having to qualify it with such terms as “more or less,” “troubled,” “half ass” or the like. We just say, “Harry and Susie are married,” realizing that what that amounts to it in their case may not be the pure thing of romance novels.
There is a problem, however, since unlike most uses of “marriage” or “married,” “capitalism” or “capitalist” rarely occur in nonpartisan contexts. Those using the terms are usually either critics or champions. And the critics will mostly zero in on what they regard as the liabilities of capitalism while the champions on the assets, not bothering to make very clear what is the central or core aspect of the system. Even when one spells it out, however, there will be those who will look for a chance to besmirch capitalism and those who will admit to no possible problems with it at all.
I am not going to clear all this up here but I would recommend, strongly, that when such terms are used, a bit of time and space be reserved to offering some details, some qualifiers, such as “I do not have in mind state or crony or similar version of capitalism but the unsullied sort we find in such advocates as Ludwig von Mises or Ayn Rand.” Sure, this may not pacify the determined critic and such a person is likely to associate capitalism with all kinds of features that no one who is honest would claim is a part of it. Thus, in a recent letter to me, in response to a column I wrote, someone insisted that capitalism must involve massive theft by the rich! And this zero sum idea about capitalism is evident in many discussions even though it is all wrong.
Of course, one can do a similar thing with all systems one does not favor, such as socialism or communism, and focus only on, say, the Soviet or North Korean version, not admitting that some forms may be rather mild and peaceful, such as the kind that we find in many a kibbutz or commune. Not that these will have escaped all the liabilities of a system in which the means of production are publicly owned but they may have managed to deal with them less harshly than the Soviets did when they collectivized Russia’s farms.
Most of us do not have the time to discuss even the most important issues in full so that we do take care to cover all crucial elements and avert most honest misunderstandings. But it may be worth giving it a try if it is likely to secure a civilized discussion instead of what turns out to amount to a mere slinging of political ad hominems.
To Whom Is a Business Manager Morally Responsible?
Dec 16th
Over the last several decades the field of business ethics has become very popular in colleges and universities, including business schools, around the world. Actually, other professional ethics courses have also gained entry into the medical, legal, engineering, and other curriculums. (Oddly, though, the ethics of education and scholarship have not joined this trend!)
In the field of business ethics the focus has tended to be on what has come to be called the theory of Corporate Social Responsibility (CSR). This view takes it as a given, not in need of a lot of argument, that what corporations ought to do, first and foremost, is to benefit society and not those who own the firm. One explanation of this focus is that in the field of economics, which is regarded a social science, it is widely accepted that what corporate managers will do—not so much what they ought to do—is to improve the company’s bottom line.
Back in 1970 the late Milton Friedman did write a widely reprinted article for The New York Times Magazine, “The Social Responsibility of Business Is to Increase its Profits,” insisting that the moral responsibility of corporate managers is to strive to make the company profitable. Up until that time it was simply taken for granted that this is what corporate mangers would be doing—this follows from the general assumption in economics that in the marketplace everyone embarks upon the maximization of utilities, which is pretty much the same thing as trying to make a profit. But Friedman changed the account somewhat by claiming that this is not only what corporate managers do but it is also what they are morally obliged to do. Why? Because that is what they promised to do to the company’s shareholders and investors.
In response to Friedman a great many people who came from the field of philosophical ethics began to write extensively about business ethics and insisted that, on the contrary, what corporate managers ought to do is to manage companies so they would benefit stakeholders. In other words, the moral responsibility of corporate managers is not to improve the bottom line but to help all those who could benefit from what the company is doing, all those who have a stake in the company’s fortunes. This became the CSR movement. And today there are journals, magazines, conferences, and many books that advance the idea that the moral responsibility of corporate managers is to benefit society, not the owners—shareholders, investors, stockholders—of the company.
This line of thinking is a not altogether subtle attack on the nature of the capitalist economy. In a capitalist system, companies are owned by those who buy shares and invest in them, and their managers’ purpose is to make them succeed in the marketplace. Such success is measured, naturally, by how profitable they are, how good a return they bring in from their owners’ investment. The details depend on the kind of firm in question, obviously, but this is the general understanding of capitalist business.
Of course, from the beginning the idea of capitalism—a term first used by critics!—has been demeaned by many people because it treated profit-making as a good thing. Going into the marketplace with the intention of bringing home a good return on one’s investment just appeared too greedy, too avaricious. Never mind that, in fact, once one makes a good return on one’s investment, it is an open question as to what one will do with the wealth one has accumulated. So the practical impact of rejecting the capitalist model is not so much a rejection of wealth but a rejection of the private allocation of wealth. Critics of capitalist business, in other words, do not want private individuals to be in charge of spending the profits made in business. They would like society or the public—which for practical purposes translates into government—to decide what happens to the wealth.
This used to be called socialism, but by now that grand experiment as a political economic system has had innumerable setbacks across the globe, so the term “socialism” has been dropped. Instead we have CSR or stakeholder theory. If such an idea can catch on, it will have the same impact that socialism does—to undermine the rights of individuals to allocate their own wealth and place this power into the hands of politicians and bureaucrats. All this without having to fess up to favoring socialism.
What needs to be debated in the field of business ethics is whether ownership confers the rightful authority to allocate resources. There should be no question-begging presumption that companies must serve society (all others in the realm)—after all, if they do their business well, they do that anyway while they are seeking to make profits. How profits should arguably be used should be left to those who earned them.
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Tibor R. Machan, Ph.D., Professor of Business Ethics and Free Enterprise, gave a speech at Franklin College on June 6, 2007, entitled “Business Ethics and Corporate Responsibility: Shareholders versus Stakeholders.” Professor Emeritus of Philosophy at Auburn University, he also holds the R. C. Hoiles Chair in Business Ethics & Free Enterprise at the Argyros School of Business & Economics, Chapman University, in Orange, CA. He is the author, most recently, of The Morality of Business, A Profession for Human Wealthcare (Springer, 2007). He also co-authored, with James E. Chesher, The Business of Commerce: Examining an Honorable Profession (Hoover Institution Press, 1999). In the autumn of 1983 and again in 1985-1986 Dr. Machan was the Harwood Professor at Franklin College.
Column on the American Right
Nov 7th
American Right Wing
Tibor R. Machan
When those on the political Left refer to defenders of the free market
system as “right wingers,” there is understandable concern about how the
term is being abused. Classical liberals, the supporters of both economic
and civil libertarianism, have been anything but “right wingers,” quite
the opposite.
In European political history the Right has been royalists, fascist,
traditionalists, and even militarist, while the Left included mainly
socialists, communists, and welfare statists. Those who champion free
market capitalism do not fall within either of these groups because they
tend, in the main, to oppose statism or the use of the government for
purposes of problem solving. For the classical liberal the problems in a
society are best addressed within the private sector.
In America the classifications are different because America’s distinctive
tradition includes classical liberalism. The right wing in the USA isn’t
mostly fascist or royalists but religious and traditionalist but since a
central feature of tradition in American politics is classical liberal or
libertarian, labeling champions of the fully free system “right wingers”
makes a certain amount of sense. But it can also serve a dubious agenda of
the Left, namely, to associate free market capitalism with right wing
statism, as if the likes of F. A. Hayek, Milton Friedman, Ayn Rand, and so
on had anything at all in common with fascists and royalists. (The Left
here is very eager to make it seem that Milton Friedman “Chicago Boys”
embraced General Pinochet of Chile rather than the other way around!) But
the association serves the not so hidden purpose of smearing them in
virtue of how the Right elsewhere does veer very close toward fascism and
royalism.
In the current dispute about the vast and rapid expansion of the role of
government in society, increasing government’s scope by leaps and bounds,
charging opponents with being right-wingers comes in handy. These
opponents are indeed a coalition of libertarians and American
conservatives because libertarians oppose statism on principle and also
for a variety of practical reasons and American conservatives oppose it as
a matter of the American political tradition–for example, the Declaration
of Independence and the Bill of rights. But the American right is quite
selective about embracing liberty. Mostly American conservatives support
free markets but not so much civil libertarianism. On that score the
American Left is more like the libertarians, although mainly for
opportunistic reasons.
This is evident on how readily the American Left, along with others on the
Left across the globe, supports the likes of Venezuela’s strong man Hugo
Chavez as well as Fidel Castro. In the case of these political figures,
the Left abandons its apparent support for civil libertarian ideals,
mainly because the American Left tends to share the revolutionary goals of
other Left wingers around the globe and any revolution, Left or Right,
would be slowed down by principled civil libertarian policies. So while
civil libertarianism is useful for the Left as it combats general right
wing measures such as those included in the more hysterical elements of
the homeland security, it is likely to be abandoned once the Left gains
power in the USA. For example, the White House’s overt attacks on Fox TV
news, or global warming skeptics, or its badmouthing of the opponents of
Obama & Co.’s health care ideas–instead of doing honest debate with
them–shows how little the American Left cares about civil libertarianism.
Yes, opposition to George W. Bush’s policies vis-a-vis terrorism suspects
has the ring of civil libertarianism about it. But at bottom that does not
seem to be the main reason for it. We can tell that from how readily
similar policies by Leftist governments around the globe do not disturb
many on the Left. Political categorization is not always easy and there
are too many exceptions in nearly all instances of it. (A Left oriented
public figure and commentator such as Nat Hentoff cannot be considered
merely opportunistic about civil liberties!)
In America the category of “right wing” is complicated by the fact that
the American political tradition is classical liberal, not at all royalist
or fascist. But without making this clear, those who label their opponents
right wingers capitalize on the fact that the Right includes racists and
anti-Semites, thus giving champions of free market capitalism a bad name
by including them on the Right.
